No water rights negotiations with iwi - PM

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Prime Minister John Key has ruled out direct negotiation with iwi, including Waikato-Tainui, over water rights as a High Court challenge over the Government's asset sales enters its second day.

He has also warned that losing the case would force the Government to borrow more money as there is none left in the coffers for capital spending on new projects like schools and hospitals.

"We have no capital budget allocated in our accounts; so in other words we are working on the principle that when we buy other assets on behalf of New Zealanders we'll be using funds we get out of the Mixed Ownership Model process," Mr Key said.

"If we can't sell those 49 per cent stakes, in principle we are going to have to make a decision about whether we are going to go ahead and buy other assets.

There are some assets we just need to purchase so arguably New Zealand would go into debt.

"At a time when the world is going through an economic crisis, where debt is fundamentally bad....I can't see why New Zealanders would want us to add more debt than we absolutely have to to the New Zealand balance sheet."

The Maori Council wants the sale of shares in Mighty River Power put on hold till water rights are resolved.

Mighty River Power is the first State owned power company which the Government plans to sell a minority stake.

The Maori Council challenge has already delayed the share float till next year.

But Mr Key said he did not believe there would be further delays, even if the challenge went to the Supreme Court as expected.And he ruled out a settlement to make the challenge go away.

"The basic principle here is the Crown believes it's right. The Crown does not believe that the selling of shares in any way impinges on a Government's right to register rights and interests if they believe those rights and interests are genuine.

"I can't see any particular reason why we would want to back away from our current position."

On the first day of the hearing yesterday, the Maori Council case appeared to turn on whether ministers are simply implementing the will of Parliament by declaring Mighty River Power is no longer a state-owned enterprise.

Justice Ronald Young identified the Crown's ''king hit'' submission was that ministers would be carrying out Parliament's intent by transferring the state assets to the mixed ownership model in line with an amendment to the State Owned Enterprises Act.

That would mean the court could not review the decision, because Parliament is sovereign.

However, the lawyer for the Waikato River and Dams Claim Trust, Helen Cull QC, argued the court could review the decision, which would be implemented by an order-in-council.

She said the Government had breached Section 9 of the SOE Act by acting in a way that was inconsistent with the principles of the Treaty of Waitangi.

Before the company was transferred its water rights and other generation assets should be ''tagged or marked'' or some other mechanism used to preserve Maori interests.

Justice Young said he did not understand why the Government needed to act before the transfer because water rights were determined under the Resource Management Act and the Government could change that any time in favour of Maori.